What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-02-27 compared with 2023-03-01 · 241 added, 207 removed, 308 unchanged (59% of the section changed)

5 unchanged sentences

Both AAC and Ambac UK are financial guarantee insurance companies that have been in run-off, having not underwritten any new business since 2008.

AFS uses interest rate derivatives to hedge interest rate risk in AAC's insurance and investment portfolios.

• Specialty Property and Casualty Insurance — Ambac's Specialty Property and Casualty Insurance program business.

Currently includes five admitted carriers and an excess and surplus lines (“E&S” or “nonadmitted”) insurer, Everspan Indemnity Insurance Company (all carriers collectively, “Everspan”).

Three of the five admitted carriers were acquired in 2022.

AFS is AAC's legacy interest rate swap provider which is also currently being run-off.

• Specialty Property and Casualty Insurance — Ambac's specialty property and casualty program business ("Specialty Property and Casualty Insurance") includes five admitted carriers and an excess and surplus lines (“E&S” or “nonadmitted”) carrier (collectively, “Everspan”).

Everspan carriers have an AM Best rating of 'A-' (Excellent).

• Insurance Distribution — Ambac's specialty property and casualty ("P&C") insurance distribution business, which could include Managing General Agents and Underwriters (collectively "MGAs" or "MGA/Us"), insurance wholesalers, brokers and other distribution businesses, currently includes Xchange Benefits, LLC (“Xchange”) a P&C MGA specializing in accident and health products, All Trans Risk Solutions, LLC ("All Trans"), an MGA/U specializing in commercial automobile insurance for specific "for-hire" auto clauses, and Capacity Marine Corporation ("Capacity Marine"), a wholesale and retail brokerage and reinsurance intermediary specializing in marine and international risk.

Refer to Note 4.

Business Combination in this Annual Report on Form 10-K, for further information relating to these acquisitions.

Beginning in the first quarter of 2022, the Company began reporting these three business operations as segments;

• Insurance Distribution — Ambac's insurance distribution business includes managing general agents/underwriters (collectively "MGAs" or "MGA/Us") and insurance brokers operating as part of Cirrata Group.

Beginning in 2022, the Company began reporting these three business operations as segments;

Segment Information for further information.

2 unchanged sentences

Strategies to Enhance Shareholder Value

The Company's primary goal is to maximize long-term shareholder value through the execution of key strategies for its (i) Specialty Property and Casualty Insurance and Insurance Distribution businesses and (ii) Legacy Financial Guarantee Insurance.

The Company's primary goal is to maximize long-term shareholder value through the execution of targeted strategies for its (i) Specialty Property and Casualty Insurance and Insurance Distribution businesses and (ii) Legacy Financial Guarantee Insurance business.

Specialty Property and Casualty Insurance and Insurance Distribution strategic priorities include:

• Growing a Specialty Property and Casualty Insurance business which generates underwriting profits and an attractive return on capital from a diversified portfolio of commercial and personal liability risks accessed through program administrators.

• Building an Insurance Distribution business based on deep domain knowledge in specialty and niche classes of risk which generate attractive margins at scale.

This will be achieved through acquisitions, new business “de-novo” formation and incubation, and product expansion supported by a centralized technology led shared services offering.

• Growing our Specialty Property and Casualty Insurance business to generate underwriting profits from a diversified portfolio of commercial and personal liability risks accessed primarily through program administrators.

• Expanding our Insurance Distribution business based on deep domain knowledge in specialty and niche classes of

risk which generate attractive margins at scale.

This will be achieved through acquisitions, establishing new businesses “de-novo,” and organic growth and diversification supported by a centralized technology led shared services offering.

• Making opportunistic investments that are strategic to both the Specialty Property and Casualty Insurance and Insurance Distribution businesses.

Legacy Financial Guarantee Insurance strategic priorities include:

• Actively managing, de-risking and mitigating insured portfolio risk, and pursuing recovery of previously paid losses.

• Actively managing, de-risking and mitigating insured portfolio risk, and pursuing recoveries of previously paid losses.

• Improving operating efficiency and optimizing our asset and liability profile.

4 unchanged sentences

Pursuant to such guarantees, AAC and Ambac UK make payments if the obligor responsible for making payments fails to do so when due.

AAC and Ambac UK wrote the last insurance policy in 2008 and have been in run-off ever since.

Ambac's Financial Guarantee business strategy is to increase the residual value of AAC and Ambac UK with the ultimate goal of monetizing such value through (i) dividends and capital distributions while managing their active run-off;

(ii) one or more reinsurance transactions or other de-risking transactions that will accelerate or enhance the ability of AAC and/or Ambac UK to pay dividends and make capital distributions;

(iii) the sale of all or portions of AAC and/or Ambac UK, or (iv) other strategic transactions to accelerate and/or enhance the above-stated corporate strategy.

AAC and Ambac UK have been reducing risk within their insured portfolios and focusing on exposures to financially stressed municipal entities and asset-

| Ambac Financial Group, Inc.

2 2022 FORM 10-K

Table of Contents ,

backed securities as well as large and concentrated exposures.

Opportunities for remediating losses on poorly performing insured transactions depend on a number of factors including market conditions, the structure of the underlying risk and associated policy, as well as counterparty specific factors.

AAC's ability to remediate risk and commute policies may be limited by available liquidity.

Additionally, AAC and Ambac UK are actively managing their regulatory frameworks and seeking to optimize capital allocation in a complex insured portfolio that includes long duration obligations.

The execution of Ambac’s strategy to increase and monetize the residual value of AAC is subject to significant risk as well as the restrictions set forth in the Settlement Agreement, dated as of June 7, 2010 (the "Settlement Agreement"), by and among AAC, Ambac Credit Products LLC ("ACP"), AFG and certain counterparties to credit default swaps with ACP that were guaranteed by AAC, as well as the Stipulation and Order among the Office of the Commissioner of Insurance for the State of Wisconsin (“OCI”), AFG and AAC that became effective on February 12, 2018, as amended (the “Stipulation and Order”), each of which requires OCI and, under certain circumstances, holders of the debt instruments benefiting from such restrictions, to approve certain actions taken by or in respect of AAC.

In exercising its approval rights, OCI will act for the benefit of policyholders, and will not take into account the interests of AFG.

Background and Business Description to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information.

AAC and Ambac UK last wrote insurance policies in 2008 and have been in run-off ever since.

Financial guarantee revenues consist mostly of premiums earned from run-off insurance contracts, net of reinsurance, and income on investments held in AAC's and Ambac UK's investment portfolios.

3 unchanged sentences

(iii) interest expense on debt, (iv) operating expenses and (v) insurance intangible amortization.

Ambac's Legacy Financial Guarantee Insurance business strategy is to increase the residual value of AAC and Ambac UK with the ultimate goal of monetizing such value through (i) dividends and capital distributions while managing their active run-off;

(ii) one or more reinsurance transactions or other de-risking transactions that will accelerate or enhance the ability of AAC and/or Ambac UK to pay dividends and make capital distributions;

(iii) the sale of all or portions of AAC and/or Ambac UK;

or (iv) other strategic transactions to accelerate and/or enhance the above-stated corporate strategy.

Ambac and its advisors are actively discussing strategic options for its Legacy Financial Guarantee Insurance business with interested parties.

While we anticipate that these discussions will be completed in 2024 there can be no assurance that we will ultimately complete any strategic initiative.

AAC and Ambac UK have been reducing risk within their insured portfolios focusing on exposures to financially stressed insured exposures as well as large and concentrated exposures.

Opportunities for remediating losses on poorly performing

Ambac Financial Group, Inc 2

2023 Form 10-K

Table of Contents ,

insured exposures depend on a number of factors including market conditions, the structure of the underlying risk, the perception of AAC’s or Ambac UK’s creditworthiness, as well as counterparty specific factors.

Their ability to remediate risk and commute policies may be limited by available liquidity.

Additionally, AAC and Ambac UK are actively managing their regulatory frameworks and seeking to optimize capital allocation in complex insured portfolios that include long duration obligations.

The execution of Ambac’s strategy to increase and monetize the value of its investment in AAC is subject to the restrictions set forth in the Settlement Agreement, dated as of June 7, 2010, as amended (the "Settlement Agreement"), by and among AAC, Ambac Credit Products LLC ("ACP"), AFG and certain counterparties to credit default swaps with ACP that were guaranteed by AAC, as well as the Stipulation and Order among the OCI, AFG and AAC that became effective on February 22, 2024 (the “Stipulation and Order”), replacing the Stipulation and Order that became effective on February 12, 2018, as amended (the “2018 Stipulation and Order”), each of which requires the Office of the Commissioner of Insurance for the State of Wisconsin ("OCI") and, under certain circumstances, holders of surplus notes, to approve certain actions taken by or in respect of AAC.

In exercising its approval rights, OCI will act for the benefit of policyholders, and will not take into account the interests of AFG.

• The Settlement Agreement limits certain activities of AAC and its subsidiaries, such as issuing indebtedness;

engaging in mergers and similar transactions;

disposing of assets;

making restricted payments;

creating or permitting liens;

engaging in transactions with affiliates;

modifying or creating tax sharing agreements;

and taking certain actions with respect to surplus notes (among other restrictions and limitations).

The Settlement Agreement includes certain allowances with respect to these activities and generally requires the approval of OCI and, in some cases, holders of surplus notes issued pursuant to the Settlement Agreement, for consents, waivers or amendments.

• The Stipulation and Order requires AAC to maintain a level of surplus and contingency reserves as regards policyholders which provide reasonable security against contingencies affecting AAC’s financial position that are not otherwise fully covered by reserves or reinsurance;

discount loss reserves in a manner approved by OCI;

maintain OCI’s Runoff Capital Framework (as defined and described below) according to parameters specified by OCI;

pay the costs of consultants and other experts retained by OCI;

refrain from certain affiliate transactions and the payment of any dividend or other distribution without the prior non-disapproval of OCI;

notify OCI of events that would or would be reasonably likely to cause a material adverse effect to AAC or its affiliates;

obtain OCI’s non-disapproval to exercise certain control rights with respect to certain policies that were previously allocated to the Segregated Account of AAC;

obtain OCI’s approval for non-ordinary course transactions involving consideration to be paid by AAC of $100 million or more;

and obtain OCI’s approval of any changes to AAC’s investment policy or derivative use plan.

The Stipulation and Order also requires AFG to use its best efforts to preserve the use of

NOLs for the benefit of AAC and its subsidiaries.

The Stipulation and Order differs from the 2018 Stipulation and Order in that the 2018 Stipulation and Order (i) did not refer to OCI’s Runoff Capital Framework;

(ii) included certain affirmative covenants concerning books and records, and reporting of information or events, that were not included in the Stipulation and Order;

and (iii) contained a more restrictive limitation on transactions with affiliates.

The Stipulation and Order has no fixed term and may be terminated or modified only with the approval of OCI.

OCI reserved the right to modify or terminate the Stipulation and Order in a manner consistent with the interests of policyholders, creditors and the public generally.

The execution of Ambac’s strategy to increase the value of its investment in AAC may be affected by a new capital framework developed and implemented by OCI to assist OCI with making decisions related to capital management at AAC ("OCI's Runoff Capital Framework").

OCI’s Runoff Capital Framework applies risk-based and other adjustments to AAC’s assets and insured liabilities, as determined by OCI in its sole discretion.

OCI’s Runoff Capital Framework allows AAC to understand the likely impact of various developments and actions now or in the future on AAC’s capital position thereunder.

No changes in AAC’s current management of the business are required by OCI’s Runoff Capital Framework.

AAC’s ability to use capital for potential future deleveraging transactions or distributions will require AAC to sustain an excess of risk-adjusted assets over risk-adjusted insured liabilities according to OCI’s Runoff Capital Framework, and to obtain OCI’s approval, and there can be no assurance that OCI will approve any such use of capital.

The results of OCI’s Runoff Capital Framework are expected to vary over time based on changes in AAC’s financial position, insured portfolio developments, the impact of strategic actions taken by AAC, the impact of asset/liability management by AAC and, possibly, changes to the inputs and assumptions utilized by OCI.

AAC has a significant amount of debt outstanding in the form of principal and accrued but unpaid interest on surplus notes.

Surplus notes are treated as capital for regulatory purposes as the obligation to pay principal and interest on them is subordinated to the obligation to pay policyholder claims and such payments cannot be made without the explicit authorization of the OCI.

OCI is developing a new capital framework ("OCI's Runoff Capital Framework") to assist OCI with making decisions related to AAC's capital and liquidity management.

OCI's Runoff Capital Framework is not yet complete and therefore we are not able to predict the results of such and what it may mean for our Legacy Financial Guarantee strategy, particularly as it relates to deleveraging AAC and distributing capital to AFG.

AAC’s ability to pay dividends to AFG has also been significantly restricted by the deterioration of AAC’s financial condition and by regulatory, legal and contractual restrictions.

AAC’s ability to pay dividends to AFG has also been significantly restricted by AAC’s financial condition and by regulatory, legal and contractual restrictions.

Substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends, which constrains AFG's liquidity.

1 unchanged sentence

Insurance Regulatory Restrictions to the Consolidated Financial Statements included in this Annual Report on Form 10-K, for more information on dividend payment restrictions.

Interest rate derivative transactions are executed through AFS, a wholly-owned subsidiary of AAC.

Interest rate derivatives are used to partially hedge interest rate risk in the financial guarantee insurance and investment portfolios.

Accordingly, interest rate derivatives are positioned to benefit from rising rates.

AFS is required to post collateral in excess of the market value of interest rate derivatives when they are in a mark-to-market loss position.

Early termination of AFS’s derivatives could result in losses.

AFS has borrowed cash and securities from AAC to help support its collateral and margin posting requirements, termination payments and other cash needs.

Given the reduction in the size of the financial guarantee insured portfolio, recent interest rate increases and other considerations, the size of the interest rate derivatives portfolio was materially reduced in the fourth quarter of 2022 and may be further reduced or eliminated in the future.

AFS also maintains a few interest rate derivatives with legacy financial guarantee customers, the exposure to which is fully hedged.

Interest rate derivative transactions were executed through AFS, a wholly-owned subsidiary of AAC.

All remaining interest rate derivative positions, which are substantially economically hedged, relate to legacy financial guarantee customer swaps.

Until the second quarter of 2023, interest rate derivatives were also used to partially hedge interest rate risk in the financial

Ambac Financial Group, Inc 3

2023 Form 10-K

Table of Contents ,

guarantee insurance and investment portfolios.

AFS continues to be required to post collateral in excess of the market value of certain interest rate derivatives when they are in a mark-to-market loss position.

While not anticipated, early termination of AFS’s derivatives could result in losses.

AFS has borrowed cash and securities from AAC to help support its collateral and margin posting requirements and other cash needs.

Ambac manages a variety of risks inherent in its businesses, including credit, market, liquidity, operational and legal.

8 unchanged sentences

Please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Guarantees in Force” section below for details on the financial guarantee insured portfolio.

The Risk Management Group ("RMG") is primarily responsible for the development, implementation and oversight of loss mitigation strategies, surveillance and remediation of the insured financial guarantee portfolio (including through the pursuit of recoveries in respect of paid claims and commutations of policies).

Our ability to execute certain risk management activities may be limited by the restrictions set forth in the Settlement Agreement and the Stipulation and Order and other constraints, potentially including OCI's Runoff Capital Framework.

The Risk Management Group ("RMG") is primarily responsible for the management of the insured financial guarantee portfolio, including Surveillance and Risk Remediation (including through the pursuit of recoveries in respect of paid claims and commutations of policies).

Our ability to execute certain risk management activities may be limited by the restrictions set forth in the Settlement Agreement and the Stipulation and Order, among other constraints.

To the extent OCI's approval is required in connection with risk management activities, OCI's decisions may be guided by OCI's Runoff Capital Framework.

Background and Business Description to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information.

Ambac’s RMG has an organizational structure designed around four primary areas of focus:

Surveillance, Risk Remediation, Credit Risk Management and Loss Reserving and Analytics.

Surveillance is focused on the early identification of potential stress and/or credit deterioration and the related analysis of credit exposures in the insured portfolio.

Additionally,

| Ambac Financial Group, Inc.

3 2022 FORM 10-K

Table of Contents ,

Surveillance evaluates the impact of changes in the economic, regulatory or political environment on the insured portfolio.

Additionally, Surveillance evaluates the impact of changes in the economic, regulatory or political environment on the insured portfolio.

Analysts perform periodic credit reviews of insured exposures according to a schedule based on the risk profile of the guaranteed obligations or as necessitated by specific credit events or other macro-economic variables.

Risk-adjusted surveillance strategies have been developed for each bond type with review periods and scope of review based upon each bond type’s risk profile.

Surveillance strategies have been developed for each bond type with review periods and scope of review based upon each bond type’s risk profile.

The risk profile is assessed regularly in response to our own experience and judgments or external factors such as the economic environment and industry trends.

The focus of a credit review is to assess performance, identify credit trends and recommend credit classifications, ratings and changes to a transaction or bond type’s review period and surveillance requirements.

The focus of a credit review is to assess performance, identify credit trends and recommend credit classifications, ratings and changes to a

transaction or bond type’s review period and surveillance requirements.

Please refer to Note 2.

Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of the various credit classifications utilized by Ambac.

If a problem is detected, the Surveillance group will then work with the Risk Remediation group on a loss mitigation plan, as necessary.

The insured portfolio contains exposures that are correlated and/or concentrated.

RMG's surveillance activities include identifying these types of exposures and identifying the risks that would or could trigger credit deterioration across these related exposures.

This is the case with student loans and residential mortgage-backed securities ("RMBS"), for example, which have several correlations including those associated with consumer lending, unemployment and home prices.

In the future, Ambac’s portfolio may be subject to similar credit deterioration arising from concentrated and/or correlated risks.

Examples of other such risks that could impact our portfolio, and that our surveillance is designed to monitor include the impact of potential municipal bankruptcy contagion, the impact of tax reform on state and municipal bond issuers, the impact of large scale domestic military cutbacks on our privatized military housing portfolio and event risk such as pandemics (e.g., COVID-19), natural disasters or other regional stresses.

Examples of other such risks that could impact our portfolio, and that our surveillance is designed to monitor include the impact of potential municipal bankruptcy contagion, the impact of large-scale domestic military spending or troop level cutbacks on our privatized military housing portfolio and event risk such as pandemics (e.g., COVID-19), natural disasters or other regional stresses.

Most such risks cannot be predicted and may materialize unexpectedly or develop rapidly.

Although our surveillance allows us to connect the event and stress to the related exposures and assign an adverse credit classification and estimate losses across the affected credits, when necessary, we may not have adequate resources or contractual rights and remedies to mitigate loss arising from such risks.

Watchlist and Adversely Classified Credits

Watch list and adversely classified credits are tracked closely and are discussed as part of scheduled RMG credit meetings.

A summary of developments regarding adversely classified credits and credit trends is also provided to AFG’s, AAC’s and Ambac UK's Boards of Directors no less than quarterly.

Ambac assigns internal credit ratings to individual exposures as part of the Surveillance process.

These internal credit ratings, which represent Ambac’s independent judgments, are based upon underlying credit parameters consistent with the exposure type.

Risk Remediation

2 unchanged sentences

Loss mitigation focuses on the execution of commutation and related claims reduction or workout strategies for policies with potential future claims.

For certain adversely classified, survey

list and watch list credits (as described in Note 2.

Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K), risk remediation or loss mitigation plans are developed and implemented that may include actions such as working with the issuer, trustee, bond counsel, servicer and other interested parties in an attempt to remediate the problem and minimize AAC’s exposure to potential loss.

For certain adversely classified, survey list and watch list credits (as described in Note 2.

Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K), risk remediation or loss

Ambac Financial Group, Inc 4

2023 Form 10-K

Table of Contents ,

mitigation plans are developed and implemented that may include actions such as working with the issuer, trustee, bond counsel, servicer and other interested parties in an attempt to remediate the problem and minimize Ambac’s exposure to potential loss.

Other actions could include working with bond holders and other economic stakeholders to negotiate, structure and execute solutions, such as commutations.

In addition, reinsurance is used as a remediation tool to reduce exposure to certain targeted policies and large concentrations.

Adversely classified, survey list and watch list credits are tracked closely as part of the risk remediation process and are discussed at regularly scheduled Credit Risk Management meetings (see discussion following in “Credit Risk Management”).

In some cases, the RMG will engage restructuring or workout experts, attorneys and/or other consultants with appropriate expertise in the targeted loss mitigation area to assist in examining the underlying contracts or collateral, providing industry specific advice and/or executing strategies.

Credit Risk Management ("CRM")

The CRM function manages the decision process for all material matters that affect credit exposures within the insured portfolio.

CRM provides a forum for credit assessment discussions and approvals and drives consistency and timeliness.

The scope of credit matters under the purview of CRM includes material amendments, consents and waivers, credit review scheduling, credit classifications, rating designations, review of watch list or adversely classified credits, sector reviews and overall portfolio reviews and risk mitigation updates.

Formal plans or transactions that relate to risk remediation, loss mitigation or restructuring may also require AAC Risk Committee approval, as described below in the section entitled, "Enterprise Risk Management."

Control Rights

4 unchanged sentences

Decisions to approve or reject ACWs are made by AAC’s and Ambac UK’s risk management groups based upon certain credit factors, such as the issuer’s ability to repay the bonds and the bond’s security features and structure.

Watch List and Adversely Classified Credits

Watch list and adversely classified credits are tracked closely by the RMG teams and discussed as part of the CRM process.

The review schedule for adversely classified credits is tailored to the

| Ambac Financial Group, Inc.

4 2022 FORM 10-K

Table of Contents ,

remediation plan to track and prompt timely action and proper internal and external resourcing.

A summary of developments regarding adversely classified credits and credit trends is also provided to AFG’s, AAC’s and Ambac UK's Boards of Directors no less than quarterly.

Ambac assigns internal credit ratings to individual exposures as part of the surveillance process.

These internal credit ratings, which represent Ambac’s independent judgments, are based upon underlying credit parameters consistent with the exposure type.

Loss Reserving and Analytics ("LRA")

The LRA function manages the quarterly loss reserving process for insured portfolio credits with projected policy claims.

It also supports the development, operation and/or maintenance of various analytical models used in the loss reserving process as well as in other risk management functions.

P&C Industry Overview

6 unchanged sentences

In the E&S market, there is increased flexibility in pricing, terms, and conditions in response to evolving market dynamics, and E&S carriers can tailor insurance products to facilitate coverage that would not otherwise be attainable.

This unique flexibility lends itself to providing specialist solutions for unique risks, which has driven meaningful growth within the E&S market over the last decade, which has exceeded the growth rate of the Admitted market.

According to data from AM Best, the E&S market generated approximately $83 billion of direct written premium in 2021 or 10% of the industry direct premium volume.

This unique flexibility lends itself to providing solutions for unique risks, which has driven meaningful growth within the E&S market over the last decade exceeding the growth rate of the Admitted market.

According to data from AM Best, the E&S market generated approximately $99 billion of direct written premium in 2022 an increase of 19.2% over the prior year and and represents over 11% of the industry direct premium volume.

The E&S market is more heavily focused in commercial lines and accounted for over 21% of total commercial direct written premium for the first time in 2022.

For the period of 2011 through 2021 the E&S sector had a compound annual growth rate of 10% compared to 5% for the overall U.S.

For the period of 2012 through 2022 the E&S

sector had a compound annual growth rate of 11% compared to 5% for the overall U.S.

Everspan presently has five admitted carriers, which are wholly-owned except as indicated below:

2 unchanged sentences

Consolidated National Insurance Company;

21st Century Auto Insurance Company of New Jersey;

and Providence Washington Insurance Company, of which it owns 90.1%.

Consolidated Specialty Insurance Company;

and Providence Washington Insurance Company (90.1% owned).

Everspan Indemnity Insurance Company ("Everspan Indemnity"), an E&S carrier, which is eligible to write business in all U.S.

2 unchanged sentences

It is estimated that U.S.

MGA/Us generate between $70 to $100 billion of direct premiums.

MGA/Us generate between $70 to $100 billion of direct premiums in 2023.

We believe there are significant advantages to the MGA/U business model when it comes to capturing the opportunity in the E&S market and propelling profitable growth.

2 unchanged sentences

Additionally, MGA/Us are cost effective means for an insurer or reinsurer to access or grow a particular class of business they find attractive given the MGA/U already possesses product expertise and distribution capabilities.

The MGA/U sector is one of fastest growing segments of the U.S.

P&C insurance market, doubling in size between 2011 and 2020, with loss ratios consistently lower than the P&C sector overall.

In 2021, the U.S.

market was estimated by a leading broker to have over 1,000 MGA/Us with 700 identified in statutory filings and another 350 estimated to fall below the filing threshold.

According to data from AM Best, the MGA/U sector is one of fastest growing segments of the U.S.

P&C insurance market with 2022 direct premium written of $68 billion, an increase of 14% over the prior year, and loss ratios consistently lower than the P&C sector overall.

In 2022, AM Best identified 654 MGAs in the U.S.

market with likely several hundred additional MGAs not counted in that group as their premium production falls below the filing threshold.

We believe the growth in the MGA/U and program space is likely to continue as the industry continues its move towards increased specialization.

Specialty Property and Casualty Insurance

Everspan’s strategy as a hybrid insurer is to generate sustainable and profitable, long-term specialty property and casualty program insurance business with a focus on diverse classes of commercial and personal liability risks across an expanding roster of MGA/U partners.

As a hybrid insurer Everspan may retain a percentage of the business it underwrites.

Everspan's management team has significant years of experience in the program insurance business and has long-standing and broad relationships with MGA/Us, reinsurers, brokers, producers and third-party claims administrators ("TPAs").

Everspan’s strategy is to generate sustainable and profitable, long-term specialty property and casualty program business with a focus on diverse classes of commercial and personal liability risks across an expanding roster of MGA/U partners.

As a specialty property and casualty program group.

Everspan may retain a percentage of the business it underwrites.

Everspan's management team has significant years of experience in the program insurance and reinsurance sectors and has long-standing and broad relationships with MGA/Us, reinsurers, brokers, producers and third-party claims administrators ("TPAs").

Everspan sources business through program administrators and managing general agents, reinsurers, brokers, producers and others.

Everspan is developing long-term relationships with its distribution partners.

Subject to Everspan's operational oversight, Everspan engages these third parties to market and administer policies and handle claims within defined authorities on Everspan's behalf.

Everspan is focused on generating strong underwriting results and program fee income from its participatory fronting business model.

For the year ended December 31, 2022, Everspan issued insurance policies generating $146 million of gross written premium, of which Everspan retained approximately 20% with the balance ceded to quota share reinsurers.

The following table sets forth our largest lines of business for the year ended December 31, 2022:

Everspan is focused on generating strong underwriting results and stable fee income as part of its specialty program business model.

Ambac Financial Group, Inc 5

1 unchanged sentence

Table of Contents ,

For the year ended December 31, 2023, Everspan generated $273 million of gross written premium, of which Everspan retained approximately 29%, including assumed written premiums.

Everspan retained approximately 17% of its direct written premiums, with the balance primarily ceded to quota share reinsurers.

Everspan may retain up to 30% of risk on each direct program and will reinsure the remainder to reinsurers and other providers of risk capital.

These reinsurers may be domestic and foreign reinsurers and institutional risk investors (capacity providers).

While underwriting direct business produced by MGA/Us is Everspan's primary means of distribution, Everspan also selectively assumes reinsurance to further its goal of writing a diversified book of specialty P&C business while efficiently managing its exposure limits.

For example, the Company would evaluate, and may write certain lines, including those with catastrophe risk or Workers’ Compensation on an assumed basis.

Everspan may participate as a reinsurer on up to 30% of a program, which is in line with its strategy to retain up to 30% of risk per program.

Participation as a reinsurer will affect the retention ratio as Everspan's portion of assumed premiums is reflected fully in both Gross and Net Written Premiums.

The following table sets forth gross written premiums (direct and assumed) by line of business for the years ended December 31, 2023 and 2022:

($ in millions)

Year Ended December 31, 2023 2022

Gross written premiums by line of business:

Commercial auto liability $ 122 $ 117

Commercial auto physical damage 12.6 —

General liability 6.0 —

Excess liability 41 5

General liability 27 6

Non-standard auto 20 —

Workers Compensation 20 —

Commercial auto physical damage 12 13

Gross written premiums $ 273 $ 146

Everspan may retain up to 30% of risk on each program and will reinsure the remainder to reinsurers and other providers of risk capital.

These reinsurers may be domestic and foreign (re)insurers and institutional risk investors (capacity providers) that want access to specific lines of U.S.

property and casualty insurance business that they may not have the required licenses and filings to otherwise insure.

Everspan purchases reinsurance to manage its net retention on individual risks and overall exposure to losses, while providing it with the ability to offer policies with sufficient limits to meet producer and policyholder needs.

Generally, reinsurance contracts are specific to a program, are purchased on an annual basis, and are subject to renegotiation at renewal.

The key contractual provisions include, but are not limited to, those relating to ceding commissions, fronting fees, required reports to reinsurers, responsibility for taxes, arbitration in the event of a dispute and Everspan's termination rights when, among other triggers, a reinsurer defaults (such as by failing to collateralize its obligations when required) or its financial strength falls below an agreed level.

Generally, reinsurance contracts are specific to a program and are renewed annually, at which time they are subject to renegotiation.

The key contractual provisions include, but are not limited to, those relating to the scope of business reinsured, ceding commissions, required reports to reinsurers, dispute resolution, any required collateral, and Everspan's termination rights when, among other triggers, a reinsurer defaults (such as by failing to collateralize its obligations when required) or its financial strength falls below an agreed level.

Everspan’s ceded reinsurance contracts do not legally discharge Everspan from its primary liability for the full amount of the policies, and Everspan will be required to pay the loss and bear collection risk if a reinsurer fails to meet its obligations under the reinsurance agreement.

Everspan mitigates this credit risk by selecting well capitalized, highly rated, authorized capacity providers, or requiring that the capacity provider post collateral, typically in the form of letters of credit issued by NAIC-qualified financial institutions, to secure the reinsured risks.

The following graph shows our reinsurance carriers' AM Best rating based on share of ceded premium for the year ending December 31, 2022:

of credit issued by or trust accounts in the custody of NAIC-qualified financial institutions, to secure the reinsured risks.

The following graph shows our reinsurance carriers' AM Best rating based on share of ceded premium for the year ended December 31, 2023:

(1) NR represents reinsurance carriers not rated by AM Best.

5 unchanged sentences

• Experience — Everspan has an experienced leadership team across underwriting, pricing, claims, and business development with an average tenure of over 30 years in the insurance industry.

• Underwriting Focused Strategy — Everspan is driven by underwriting performance, which is achieved via comprehensive diligence and monitoring of MGA/U partners from our in-house pricing actuaries, claims executive, and program managers.

This underwriting focus also aides in achieving and maintaining support from the reinsurance partners.

This underwriting focus also aides in achieving and maintaining support from reinsurance partners.

• Risk Appetite — Everspan may retain up to 30% of the risk it underwrites.

3 unchanged sentences

• Nimble Platform — A simplified organizational structure which allows Everspan to be efficient and quick in responding to the needs of program partners as well as finding customized solutions.

We believe this provides a competitive advantage to the more traditional competitors in the market.

We believe this provides a

Ambac Financial Group, Inc 6

1 unchanged sentence

Table of Contents ,

competitive advantage to the more traditional competitors in the market.

• Aligned Ownership — Everspan has a stable ownership structure which is equally focused on long-term value creation based on strong underwriting performance.

This alignment of interest and strategic vision allows Everspan to leverage resources across the Company and access capital for future initiatives.

Everspan faces competition from program business market participants such as Accelerant Specialty, Accredited America, Benchmark Insurance Company, Clear Blue Insurance Group, Core Specialty, Falls Lake Insurance, Fortegra Insurance Group, Obsidian, Spinnaker, State National, Transverse Insurance Group, and Trisura.

This alignment of interest and strategic vision allows Everspan to leverage resources across Ambac and access capital for future initiatives.

Everspan faces competition from program business market participants such as Accelerant, Benchmark, Clear Blue, Core Specialty, Falls Lake, Fortegra, Obsidian, Spinnaker, State National, Transverse, and Trisura.

Most of these entities have both admitted and E&S carriers.

Competition may take the form of lower ceding fees, broader coverages, greater product flexibility, higher coverage limits, greater customer service or higher financial strength ratings by independent rating agencies.

Competition may take the form of lower program fees, broader coverages, greater product flexibility, higher coverage limits, greater customer service or higher financial strength ratings by independent rating agencies.

Few barriers exist to prevent existing insurers from entering target markets within the property and casualty industry.

11 unchanged sentences

We look for program partners that share our vision of underwriting performance and return expectations and consequently are selective about with whom we partner.

In 2022 we reviewed over 180 submissions and agreed to contract with nine MGA/Us.

As noted above, most of Everspan’s programs are sourced either from MGA/Us or through other third parties, such as reinsurance brokers, that are seeking to provide customized insurance solutions that require a carrier with a high rating from AM Best.

As of December 31, 2023, we have 23 programs with 19 MGA/Us.

In 2023 we reviewed over 180 submissions and agreed to contract 11 new programs with eight new MGA/Us and two MGA/Us with an existing relationship, while renewing or extending twelve programs with eleven incumbent MGA/Us.

Included in 2023 new programs are two executed via assumed reinsurance.

As noted above, most of Everspan’s programs are sourced either from MGA/Us or through other third parties, such as reinsurance brokers, that are seeking to provide customized insurance

solutions that require a carrier with a high rating from AM Best.

Everspan works with MGA/Us that leverage both data and technology to streamline or improve the underwriting process.

Everspan may also source programs as a reinsurer.

Accessing programs as a reinsurer provides Everspan the ability to diversify its risk profile, efficiently manage its exposure limits and underwrite programs in a cost efficient manner, amongst other benefits.

For each new opportunity that Everspan chooses to evaluate, an initial evaluation of the MGA/U is conducted, including an assessment of its underwriting approach, philosophy, size, quality of management, past performance, future performance targets and, above all, compatibility with Everspan’s operating model, risk appetite, and existing book of business.

12 unchanged sentences

Additionally, Everspan conducts underwriting, claims and accounting audits, generally on-site, at least once a year for MGA/U and TPA partners which administer a material amount of Everspan's business.

Everspan determines whether it will continue to participate on a program no less than annually, generally at the anniversary date of the program.

The renewal process entails an assessment, with Underwriting Risk Committee participation, of the program's operating performance, profitability, and available reinsurance capacity.

Everspan maintains the right to terminate relationships with its MGA/Us and TPAs.

Reasons to terminate a relationship include an inability to produce targeted underwriting results, writing exposures outside of agreed upon risk tolerances, delinquency in meeting reporting requirements, a change of strategic direction, or failure to meet collateral or other commitments to Everspan.

Everspan carriers have an AM Best FSR of 'A-' (Excellent) and Financial Strength Category of Class VIII.

Risk is shared among the Everspan carriers via a reinsurance agreement and an intercompany pooling agreement (the "Everspan Pool").

We view this rating and financial size category as a competitive advantage in the marketplace.

Ratings are an important factor in assessing Everspan’s competitive position, operation capabilities and risk management in the insurance industry.

Reasons to terminate a relationship include

Ambac Financial Group, Inc 7

1 unchanged sentence

Table of Contents ,

an inability to produce targeted underwriting results, writing exposures outside of agreed upon risk tolerances, delinquency in meeting reporting requirements, a change of strategic direction, or failure to meet collateral or other commitments to Everspan.

Everspan carriers have an AM Best financial strength ratings ("FSR") of 'A-' (Excellent) and Financial Strength Category of Class VIII.

Risk is shared among the Everspan carriers via a reinsurance agreement and an intercompany pooling agreement (the "Everspan Pool").

We view this rating and financial size category as a competitive advantage in the marketplace.

Ratings are an important factor in assessing Everspan’s competitive position, operation capabilities and risk management in the insurance industry.

Insurance Distribution

Ambac’s Insurance Distribution business, Cirrata Group ("Cirrata"), has a strategy to build a diversified portfolio of MGA/Us covering various P&C products.

Ambac plans to grow the Insurance Distribution business using several strategies, including (i) organic growth, (ii) additional acquisitions and/or partnerships, and (iii) hiring experienced underwriting teams to incubate start-up MGA/Us.

Ambac’s Insurance Distribution business, Cirrata Group ("Cirrata"), has a strategy to build a diversified portfolio of MGA/Us and other insurance distributors covering various P&C products.

Ambac plans to grow its existing Insurance Distribution business using several strategies, including (i) organic growth, (ii) additional acquisitions and/or partnerships, and (iii) hiring experienced underwriting teams to incubate start-up MGA/Us.

Key criteria include a track record of profitability and a seasoned management team.

Insurance underwritten through Ambac's MGA/Us may utilize Everspan as an insurance carrier, but will not be required to do so, depending on strategic and operational considerations.

The Insurance Distribution business derives its revenues from commissions, fees, and other non-risk bearing means of compensation.

For the years ended December 31, 2022 and 2021, Insurance Distribution generated gross commission revenue of $31 million and $26 million, respectively.

The following table sets forth our Premiums Placed by line of business:

Insurance underwritten through Ambac's MGA/Us may utilize Everspan as an insurance carrier, but are not be required to do so, depending on strategic and operational considerations.

The following table sets forth Cirrata's premiums placed by line of business:

($ in millions)

Year ended December 31, 2023 2022

Premiums placed by line of business:

Employee stop loss $ 76 $ 72

Limited and Short-term medical 48 45

Limited & short-term medical 54 48

Commercial auto 62 11

Professional liability 12 —

Premiums placed $ 231 $ 135

Cirrata's portfolio at December 31, 2023, includes the following entities:

Xchange — On December 31, 2020, Ambac acquired a controlling interest in Xchange.

Xchange — Ambac owns an 80% controlling interest in Xchange Benefits, LLC ("Xchange").

Xchange operates through specialty producers in accident and health ("A&H") sectors across the U.S.

3 unchanged sentences

• Employer Stop Loss ("ESL") — provides protection for self-insured employers by serving as a reimbursement mechanism for catastrophic claims, both specific and in aggregate exceeding pre-determined levels.

Limited Medical ("LM") — designed for those not covered by traditional Affordable Care Act medical programs and sold primarily through affinity groups, providing a variety of medically related benefits such as inpatient hospital stays, diagnostic services or physician visits.

• Limited Benefit Medical ("LM") — designed as a supplement to traditional Affordable Care Act medical programs and sold primarily through affinity groups, providing a variety of medically related benefits such as inpatient hospital stays, diagnostic services or physician visits.

• Short-term Medical ("STM") — sold primarily through affinity groups, providing non Affordable Care Act comprehensive medical coverage for short durations (i.e.

1 unchanged sentence

• Xchange Re ("MGA/U") / Distribution Re ("Captive") — in January 2023, Xchange launched two new growth initiatives;

Xchange Re an A&H reinsurance MGA/U and Distribution Re

a protected cell captive insurance company domiciled in Tennessee which will mainly insure high deductible medical stop loss plans.

Xchange Re an A&H reinsurance MGA/U and Distribution Re a protected cell captive insurance company domiciled in Tennessee which will mainly insure high deductible medical stop loss plans.

Xchange does not intend to accept or retain any risk from Distribution Re.

All Trans — Effective November 1, 2022, Ambac acquired a controlling interest in All Trans.

All Trans is a full service managing general underwriter with delegated underwriting authority in commercial automobile insurance for specific "for-hire" auto classes, specifically focused on the private school bus, motor coach, and livery operators.

All Trans' track record of performance has allowed the company to maintain a consist panel of insurance carriers with several of the relationships going back over 25 years.

Capacity Marine — Effective November 1, 2022, Ambac acquired a controlling interest in Capacity Marine.

All Trans — Effective November 1, 2022, Ambac acquired an 85% controlling interest in All Trans Risk Solutions, LLC ("All Trans").

All Trans is a full service managing general underwriter with delegated underwriting authority in commercial automobile insurance for specific "for-hire" auto classes;

principally private school bus operators.

In 2024, AllTrans launched a new program primarily focussed on charter buses.

All Trans' track record of performance has allowed the company to maintain a consistent panel of insurance carriers and client relationships, several of which go back over 25 years.

Capacity Marine — Effective November 1, 2022, Ambac acquired an 80% controlling interest in Capacity Marine Corporation ("Capacity Marine").

Capacity Marine is a wholesale and retail brokerage and reinsurance intermediary specializing in more sophisticated marine and international risk in expsoures such as ports, terminals, and stevedores.

Riverton — Effective August 1, 2023, Ambac acquired an 80% controlling interest in Riverton Insurance Agency, Corp.

("Riverton").

Riverton offers professional liability insurance programs to licensed architects, engineers, construction managers and real estate professionals.

Riverton's retail agency places professional liability for real estate agents with various markets.

In addition to existing MGA/Us and acquisitions, de novo MGA/U formations will be a core element of the Insurance Distribution segment's growth strategy.

In 2022, Cirrata hired two business leaders with plans to launch MGA/Us in 2023.

Cirrata's businesses are compensated for their services primarily by commissions paid by insurance carriers for underwriting, structuring and/or administering polices and, in some cases for managing claims under agency agreements.

Commission revenues are usually based on a percentage of the premiums paid by the insured.

Commission revenues are usually based on a percentage of the premiums placed.

The businesses are also eligible to receive profit sharing contingent commissions on certain programs based on the underwriting results of the policies they write, which may cause some variability in revenue and earnings recognition.

Gross Commission revenues in 2022 were predominantly from Xchange, whose programs are generally underwritten in January and July resulting in revenue and earnings concentrations in the first and third quarters each calendar year.

Given the recent acquisitions and de novo launches, this seasonality is likely to become more muted over time.

Core expenses at Cirrata include commissions the businesses pay to their independent agents / producers and compensation for their management and staff.

Commission revenues experience seasonality during the year, primarily from Xchange whose ESL programs are mostly underwritten in January and July resulting in revenue and earnings concentrations in the first and third quarters each calendar year.

Given the recent acquisitions and potential de

Ambac Financial Group, Inc 8

2023 Form 10-K

Table of Contents ,

novo launches, this seasonality is expected to become more muted over time.

Expenses at Cirrata include commissions the businesses pay to their independent agents/producers, compensation for their management and staff and intangible asset amortization from acquisitions.

Commission expenses are a variable cost as we pay a percentage of premiums written to the agents/producers.

Insurance Distribution generated gross commission revenue of $51 million and $31 million during the years ended December 31, 2023 and 2022, respectively and net commission revenue (gross commissions less commission expenses) of $22 million and $13 million, respectively.

Commission revenue and expense growth will be driven by the businesses' continued expansion and diversification of its products across regions, products, and carriers.

2 unchanged sentences

This knowledge is key to generating the underwriting results necessary to maintain long-standing carrier relationships.

| Ambac Financial Group, Inc.

8 2022 FORM 10-K

Table of Contents ,

• Long standing carrier relationships — Our MGA/Us strive towards long and durable carrier relationships supported by a focus on underwriting profitability.

6 unchanged sentences

• The ESL market is increasing in size as large companies continue to transition from fully insured to self-funded.

As the market size increases, capital is flowing into the market, but prices and margins remain stable.

As the market size increases, capital is flowing into the market, making prices and margins competitive.

Blue Cross, UnitedHealth, CIGNA and Aetna are the largest writers.

1 unchanged sentence

• For LM and STM, overall market conditions remain stable.

The overall market is large as entrepreneurs and the unemployed seek options for individual insurance.

Competition for Xchange's business comes from both direct carriers and other intermediaries and, depending on the product, may include Blue Cross, UnitedHealth, CIGNA, Aetna, Tokio Marine, Houston Casualty Company, Sun Life, United Health, Axis, Chubb, and National General.

The overall market is large as entrepreneurs, the unemployed and others seek options for individual insurance.

Competition for Xchange's business comes from

both direct carriers and other intermediaries and, depending on the product, may include Blue Cross, UnitedHealth, CIGNA, Aetna, Tokio Marine, Houston Casualty Company, Sun Life, United Health, Axis, Chubb, and National General.

• In the commercial auto "for-hire" classes All Trans competes with a variety of carriers both national and regional.

2 unchanged sentences

All Trans competes with Lancer insurance, National Interstate, Utica, RLI and various other MGA/U companies.

• In professional liability markets, overall market conditions remain stable.

Riverton competes with RLI, CNA, Hartford and various other MGA/U companies.

ENTERPRISE RISK MANAGEMENT

1 unchanged sentence

The Board of Directors takes an enterprise-wide approach to risk management oversight that is designed to support the Company's business plans at a level of risk considered by the Board to be reasonable.

A fundamental part of risk assessment and risk management is not only understanding the risks the Company faces and what steps management is

taking to manage those risks, but also understanding what level of risk is appropriate for the Company.

A fundamental part of risk assessment and risk management is not only understanding the risks the Company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company.

The Board of Directors periodically reviews the Company's business plan, factoring risk management into account.

4 unchanged sentences

The Audit Committee reviews with management, internal auditors and independent auditors Ambac's critical accounting policies, Ambac's system of internal controls over financial reporting and the quality and appropriateness of disclosure and content in the financial statements and other external financial communications.

Ambac Financial Group, Inc 9

2023 Form 10-K

Table of Contents ,

• The Compensation Committee oversees the management of risk primarily associated with our ability to attract, motivate and retain quality talent (particularly executive talent) and with setting financial incentives that do not motivate undue risk-taking.

3 unchanged sentences

The Governance and Nominating Committee also performs oversight of the business ethics and compliance program, and reviews compliance with Ambac’s Code of Business Conduct.

• The Strategy Committee oversees the management of risk and risk appetite primarily with respect to strategic plans and initiatives.

• The Strategy Committee oversees the management of strategic plans and initiatives.

The Board of Directors receives quarterly updates from Board committees and the Board provides guidance to individual committee activities, as appropriate.

| Ambac Financial Group, Inc.

9 2022 FORM 10-K

Table of Contents ,

In order to assist the Board of Directors in overseeing Ambac’s risk management, Ambac uses enterprise risk management, a company-wide process that involves the Board of Directors, management and other personnel in an integrated effort to identify, assess and manage a broad range of risks (e.g., credit, financial, legal, liquidity, market, model, operational, regulatory, reputational and strategic), that may affect the Company’s ability to execute on its corporate strategy and fulfill its business objectives.

9 unchanged sentences

Members of the Disclosure Committee include the CEO, CFO, Chief Accounting Officer, General Counsel, Chief Operating Officer, Head of Risk Management and senior managers from finance and legal.

• The AAC Reserve Committee's objective is to provide oversight and review of the reserving process at AAC and AUK.

• The AAC Reserve Committee's objective is to provide oversight and review of the reserving process at AAC and Ambac UK.

The committee reviews and discusses, on at least a quarterly basis, reserve-related developments and key metrics and assumptions, including, but not limited to, credit, economic, interest rates, legal and regulatory.

The committee gives approval to proceed with the development of loss estimates and related projections utilized in developing the consolidated quarterly reserves of the legacy financial guarantee business.

The committee gives approval to proceed with the development of loss estimates and related projections utilized in developing the consolidated quarterly reserves of the Legacy Financial Guarantee Insurance business.

Members of the Reserve Committee include the CEO, Head of Risk Management, CFO, General Counsel and senior managers throughout risk, legal and finance.

• Everspan established an Underwriting Risk Committee in 2021 to provide oversight of the active underwriting operations of Everspan, develop underwriting parameters, and assist the Boards of the Everspan companies in overseeing the integrity and effectiveness of Everspan’s underwriting risk management framework.

Members of the committee include the CEO, key members of Everspan management and other senior managers or advisors of

• The Everspan Underwriting Risk Committee' s objective is to provide oversight of the active underwriting operations of Everspan, develop underwriting parameters, and assist the Boards of the Everspan companies in overseeing the integrity and effectiveness of Everspan’s underwriting risk management framework.

Members of the committee include the CEO, key members of Everspan management and other senior managers or advisors of Ambac.

Additionally, a Reinsurance and Program Administrator Credit Risk sub-committee was established at the direction of the Underwriting Risk Committee to assist with the management of credit risk emanating from ceded reinsurance and program administrators.

The Company’s Enterprise Risk Management efforts build upon the foundation of an effective internal control environment.

The design of any risk management or control system must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs.

As a result, the possibility of material financial loss remains regardless of the Company’s Enterprise Risk Management efforts.

An investor should carefully consider the risks and all of the other information set forth in this annual report, including the discussions included in Item 1A.

Risk Factors, Item 7A.

Quantitative and Qualitative Disclosures About Market Risk, and Item 8.

Financial Statements and Supplementary Data.

AVAILABLE INFORMATION

3 unchanged sentences

Our Investor Relations Department can be contacted at Ambac Financial Group, Inc., One World Trade Center, 41st Floor, New York, New York 10007, Attn:

Investor Relations, telephone:

212-208-3222 email:

Investor Relations;

212-208-3222;

Ambac Financial Group, Inc 10

2023 Form 10-K

Table of Contents ,

ir@ambac.com.

12 unchanged sentences

The Stipulation and Order will remain in force for so long as OCI determines it to be necessary.

Certain of the restrictions in the Settlement

| Ambac Financial Group, Inc.

10 2022 FORM 10-K

Table of Contents ,

Agreement may be waived with the approval of the OCI and/or the requisite percentage of holders of AAC's surplus notes.

OCI's Runoff Capital Framework is not yet complete and therefore we are not able to predict the results of such and what it may mean for our Legacy Financial Guarantee Strategy, particularly as it relates to deleveraging AAC and distributing capital to AFG.

The Insurance Distribution businesses, branded as Cirrata, like other MGA/Us, program administrators and brokers, may be subject to licensing requirements and regulation by insurance regulators in various states in which they conduct business.

Cybersecurity and Privacy Regulation

Ambac and its subsidiaries are subject to various U.S.

Federal and state laws and regulations with respect to privacy, data protection and cybersecurity that require financial institutions, including insurance companies and agencies, to safeguard personal and other sensitive information, and may provide for notice of their practices relating to the collection, disclosure and processing of personal information, disclosure of cybersecurity risk management practices, reporting of cybersecurity incidents, and implementation of governance practices.

For example, the National Association of Insurance Commissioners (“NAIC”) adopted the NAIC Insurance Data Security Model Law (#668) (“NAIC Model Law”) that creates rules for insurers and other covered entities addressing data security and the investigation and notification of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information.

This includes maintaining an information security program based on ongoing risk assessment, overseeing third-party service providers, investigating data breaches and notifying regulators of a cybersecurity event.

Legislation based on the NAIC Model Law has been enacted in several states and may be enacted in other states.

Certain of our subsidiaries, as insurance companies and agencies licensed in the State of New York, are also required to comply with the New York Department of Financial Services (“NYDFS”) cybersecurity regulation, which establishes requirements for covered financial services institutions to implement a cybersecurity program designed to protect the confidentiality, integrity and availability of information systems of regulated entities, and information stored on those systems.

The regulation imposes a governance framework for cybersecurity program, risk based minimum standards for technology systems for data protection, monitoring and testing, third-party service provider reviews, security incident response and reporting to NYDFS of certain security incidents, annual certifications of regulatory compliance to NYDFS, and other requirements.

Amendments proposed to the NYDFS cybersecurity regulation will impose additional security requirements and new governance obligations.

The California Consumer Privacy Act, went into effect in January 2020, and provides additional privacy rights for California residents, and in November 2020, California further expanded privacy rights for California residents by enacting the California Privacy Rights Act, which became effective January 1, 2023.

Colorado, Connecticut, Utah and Virginia have enacted similar privacy laws.

We anticipate federal and state regulators to continue to enact legislation related to privacy and cybersecurity, which may require additional compliance investments and changes to policies, procedures and operations.

The federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”) impose minimum standards on covered entities, such as health insurers, for the privacy and security of protected health information (“PHI”).

The Health Information Technology for Economic and Clinical Health Act, enacted in 2009 (“HITECH”) provides for the extension of certain privacy and security provisions of HIPAA to business associates of covered entities that handle electronic PHI.

Xchange specializes in accident and health insurance and is a business associate of the health insurers carriers it partners with, making it subject to compliance with the provisions of HITECH and HIPAA applicable to business associates.

Certain of the restrictions in the Settlement Agreement may be waived with the approval of the OCI and/or the requisite percentage of holders of AAC's surplus notes.

OCI's Runoff Capital Framework will help OCI determine whether to approve AAC making payments on or acquiring its surplus notes and Auction Market Preferred Shares ("AMPS") and distributing capital to AFG.

The Insurance Distribution businesses, like other MGA/Us, program administrators and brokers, may be subject to licensing requirements and regulation by insurance regulators in various states in which they conduct business.

United Kingdom

2 unchanged sentences

As such, Ambac UK is authorized to run-off its insurance portfolio in the United Kingdom.

Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further information on regulatory restrictions.

Insurance Regulatory

Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further information on regulatory restrictions.

Regulation of Change in Control

Under applicable insurance law, any acquisition of control of AFG, or any other direct or indirect acquisition of control of AAC or one or more members of the Everspan, requires the prior approval (or non-disapproval) of the domiciliary regulator of the acquired company (or, in the case of AFG, the domiciliary regulators of AAC and each member of Everspan).

Under applicable insurance law, any acquisition of control of AFG, or any other direct or indirect acquisition of control of AAC or one or more members of the Everspan group of companies, requires the prior approval (or non-disapproval) of the domiciliary regulator of the acquired company (or, in the case of AFG, the domiciliary regulators of AAC and each member of Everspan).

“Control” is generally defined as the direct or indirect power to direct or cause the direction of the management and policies of a person.

4 unchanged sentences

Due to contractual and regulatory restrictions, AAC has been unable to pay ordinary dividends to AFG since 2008 and will be unable to pay ordinary dividends in 2024.

AAC’s ability to pay dividends is restricted by the Settlement Agreement, the Stipulation and Order and the terms of its Auction Market Preferred Shares ("AMPS"), and may be affected by OCI's Runoff Capital Framework when implemented.

Insurance Regulatory Restrictions to the Consolidated Financial

| Ambac Financial Group, Inc.

11 2022 FORM 10-K

Table of Contents ,

Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further information on dividends.

AAC’s ability to pay dividends is restricted by the Settlement Agreement, the Stipulation and Order and the terms of its AMPS.

OCI's decisions regarding dividends will be guided by OCI's Runoff Capital Framework.

Insurance Regulatory Restrictions to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further information on dividends.

As a result of these restrictions, substantial uncertainty remains as to AAC's ability to pay dividends to AFG and the timing of any such dividends.

Pursuant to the Settlement Agreement, AAC may not make any “Restricted Payment” (which includes dividends from AAC to AFG) in excess of $5 million in the aggregate per annum, other than Restricted Payments from AAC to AFG in an amount up to $7.5 million per annum solely to pay operating expenses of AFG.

Concurrent with making any such Restricted Payment, a pro rata amount of AAC's surplus notes would also need to be redeemed at par.

Concurrent with making any such Restricted Payment to AFG for the payment of operating expenses, a pro rata amount of AAC's surplus notes would also need to be redeemed at par.

The Stipulation and Order requires OCI approval for the payment of any dividend or distribution on the common stock of AAC.

Under the terms of AAC’s AMPS, dividends may not be paid on the common stock of AAC unless all accrued and unpaid dividends on the AMPS for the then current dividend period have been paid, provided that dividends on the common stock may be made at all times for the purpose of, and only in such amounts as are necessary for, enabling AFG (i) to service its indebtedness for borrowed money as such payments become due or (ii) to pay its operating expenses.

Under the terms of AAC’s AMPS, dividends may not be paid on the common stock of AAC unless all accrued and unpaid dividends on the AMPS for the then current dividend period

Ambac Financial Group, Inc 11

2023 Form 10-K

Table of Contents ,

have been paid, provided that dividends on the common stock may be made at all times for the purpose of, and only in such amounts as are necessary for, enabling AFG (i) to service its indebtedness for borrowed money as such payments become due or (ii) to pay its operating expenses.

If dividends are paid on the common stock as provided in the prior sentence, dividends on the AMPS become cumulative until the date that all accumulated and unpaid dividends have been paid on the AMPS.

The FSA amended Ambac UK’s license in 2010 such that the PRA must specifically approve any transfer of value and/or assets from Ambac UK to AAC or any other Ambac group company (including dividends), other than in respect of certain disclosed contracts between the two parties (such as in respect of a management services agreement between AAC and Ambac UK).

While the UK insurance regulatory laws impose no statutory restrictions on an insurer’s ability to declare a dividend, the PRA’s and FCA’s rules governing capital extraction by insurance firms in run off require Ambac UK to consider its future capital requirements over a 3 to 5 year period in both base case and downside stress scenarios before declaring a dividend.

This typically means that insurers are required to hold a buffer above regulatory capital requirements before dividends can be considered.

Further, the FSA amended Ambac UK’s license in 2010 such that the PRA must specifically approve any transfer of value and/or assets from Ambac UK to AAC or any other Ambac group company, other than in respect of certain disclosed contracts between the two parties (such as in respect of a management services agreement between AAC and Ambac UK).

As a result, Ambac UK is not expected to pay any dividends to AAC in the near future.

Ambac UK annually prepares these forecasts and stress tests as part of its regulatory submissions to the PRA each April.

If the stress tests and forecasts show adequate liquidity and regulatory capital buffers then, subject to PRA approval, it may be possible for Ambac UK to pay dividends to AAC in the near future.

Everspan Companies:

Everspan Indemnity, Everspan Insurance and its subsidiaries are also subject to regulatory restrictions on their ability to pay dividends.

1 unchanged sentence

Furthermore, certain subsidiaries of Everspan Insurance are restricted from paying dividends to Everspan Insurance until 2025 or later, unless otherwise approved by the domestic regulator of the relevant subsidiary, pursuant to the regulatory orders approving the acquisition of those subsidiaries.

Ambac's MGA/U subsidiaries are not restricted from paying dividends to their owners, including Cirrata Group, LLC ("Cirrata"), which is 100% owned by AFG.

Xchange Benefits

has regularly made quarterly distributions to Cirrata.

It is expected that All Trans and Capacity Marine will also make regular distributions to their owners, including Cirrata.

Cirrata's newly formed MGA/Us are not expected to make regular distributions to their owners until they become profitable.

Cirrata Companies:

Ambac's MGA/U subsidiaries are not restricted from paying dividends or partner distributions (collectively "Distributions") to their owners or partners, including Cirrata, which is 100% owned by AFG.

Ambac's established MGA/Us historically have paid Distributions equating to the majority of their individual EBITDA, subject to working capital and other capital needs, on a quarterly basis.

Newly formed de-novo MGA/Us are not expected to make regular distributions to their partners until they become profitable and generate free cash flow on a steady and/or predictable basis.

INVESTMENTS AND INVESTMENT POLICY

As of December 31, 2023, the consolidated non-VIE investments of Ambac had an aggregate fair value of approximately $2,664 million.

Investments are primarily managed by third party investment management firms overseen by internal investment professionals.

All investments are made in accordance with the general objectives, policies, and guidelines for investments approved by the Board of Directors of the applicable subsidiary.

Investments are primarily managed by third party investment management firms overseen internally.

All investments are made in accordance with the

general objectives, policies, and guidelines for investments approved by the Board of Directors of the applicable subsidiary.

These policies and guidelines include liquidity, credit quality, diversification and duration objectives and are periodically reviewed and revised as appropriate.

Additionally, senior credit personnel monitor the portfolio on a continuous basis.

As of December 31, 2023, the AAC and Everspan non-VIE investment portfolios had an aggregate fair value of approximately $1,810 million.

12 unchanged sentences

The Board of Directors of Ambac UK approves any changes or exceptions to Ambac UK’s investment policy.

| Ambac Financial Group, Inc.

12 2022 FORM 10-K

Table of Contents ,

As of December 31, 2023, the non-VIE AFG (parent company only, excluding investments in subsidiaries) investment portfolio had an aggregate fair value of approximately $188 million.

2 unchanged sentences

Such guidelines set forth minimum credit rating requirements and credit risk concentration limits.

As of December 31, 2023, the non-VIE Insurance Distribution investment portfolio had an aggregate fair value of approximately $4 million, primarily consisting of money market funds.

Ambac Financial Group, Inc 12

2023 Form 10-K

Table of Contents ,

At December 31, 2023 and 2022 Ambac owned $369 and $286, respectively, of distressed AAC and Ambac UK-insured bonds, primarily RMBS and student loan bonds.

Refer to Note 4.

Investments of the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K for further discussion of Ambac insured securities held in the investment portfolio.

From time to time depending on and in light of prevailing market conditions, our liquidity, internal and regulatory guidelines, contractual restrictions and OCI’s Run-off Capital Framework, Ambac may seek to opportunistically (i) purchase or sell AAC and Ambac UK-insured securities;

(ii) reduce, redeem, repurchase or otherwise retire its outstanding indebtedness, surplus notes and other AAC issued securities, including through open market repurchases, tender offers, repayments, redemptions or otherwise;

and (iii) consider opportunities to exchange securities issued by AAC for other securities issued by AFG or AAC.

Any such opportunistic liability or capital management transactions with respect to surplus notes or AMPS would in all cases be subject to and require OCI approval.

OCI’s approval may be granted or denied in OCI’s sole discretion.

The following table provide certain information concerning the consolidated investments of Ambac:

12 unchanged sentences

Fixed maturity securities - trading (2)

27 — % 59 — %

Other investments (3)

2 unchanged sentences

(1) Yields are stated on a pre-tax basis, based on average amortized cost for both long and short term fixed-maturity investments.

(2) Includes investments guaranteed by AAC and Ambac UK ("Ambac insured").

Refer to Note 5.

(3) Fixed maturity securities held for trading are Puerto Rico municipal obligations received by AAC in connection with the PROMESA restructuring process as described further in Note 8.

Insurance Contracts of the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.

(2) Fixed maturity securities held for trading are Puerto Rico municipal obligations received in connection with the 2022 restructuring of AAC-insured Puerto Rico obligations.

(3) Other investments consist primarily of interests in pooled investment funds that are either classified as trading securities or are reported under the equity method.

5 unchanged sentences

Ambac’s focus has been on identifying and retaining key talent through individual development programs following skills assessments.

Ambac’s succession planning has identified internal candidates that could fill executive management and

senior management positions as the need arises.

Ambac’s succession planning has identified internal candidates that could fill executive management and senior management positions as the need arises.

The Company has established a senior advisory team to work with, and advise, executive management on key initiatives, and has invested in both personal and professional growth programs to identify and prepare individuals for promotion within the Company.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business